Sunday, 26 February 2012

TRADE DEFICIT DATA WIN, PART I: UPDATE WITH XTRA PWNAGE

Dear readers,

It never rains but it pours. I've got a second post for you in two days, and this one is a data post so brace yourselves.

Some time ago, I looked at Greece's falling importance as a trading partner to Germany and found that, contrary to the rhetoric of the drachma brigade, Germany was increasingly less reliant (not that it ever was) on Greece as a trading partner in the post-Euro era. One commentator called me out on this saying that I should instead examine Greece's dependence on Germany as an import market, which is rather the point.

I couldn't do this for some time because getting such data is not easy. You have to go here and torture your eyeballs for some time. I thoroughly recommend it to statpornographers; it's got data on imports and exports by trading partner AND by product. So you can find out how much Greeks spend on German cars in 2001 and how much Germans spent on Greek olive oil in 2010. It's got limitations but hey, what data source doesn't.

The results are surprising even to a grizzled Euro-cynic such as myself. People generally assume that the introduction of the Euro led to a gradual increase in Greece's dependence on German imports. Greek defaultniks also occasionally claim that it led to a gradual increase in Germany's dependence on exports to Greece. Some even go so far as to claim that the purpose of the austerity-backed bailout is to keep up Greece's purchases of German exports. This despite the obvious fact, that imports in Greece, indeed in most of the world, are income-elastic: the fall in Greek consumption of German imports will almost always be steeper than the fall in our total consumption.

Anyway, the actual data show that none of the above claims are true. Don't get me wrong, Greece did become less competitive and our trade deficit grew (see further below). But we lost ground to pretty much the whole world at a greater rate than Germany, and, most importantly, the Germans neither rely on our lack of competitiveness specifically nor have any particular incentive to keep us in the Euro.

Let's start with the Greek side of things:

Amazingly, following Greece's Euro accession, Germany's share of Greek imports fell slowly but steadily, and, apart from a brief jump in 2003, so did Germany's share of the Greek trade deficit.

And now for Germany's side of the story:

Greece accounts for less than 0.7% of Germany's exports, and even in the good days it rarely accounted for more than 0.8%. That's zero-point-eight per cent guys. And that number remained more or less stable, until of course 2010, when it fell of a cliff. If we only look at the German trade surplus, it's clear Euro accession initially had the opposite effect of what people assume: Greece's share of the German trade surplus fell off an even steeper cliff than the one in 2010.

Puzzled? Then you must be very young, or have a short memory. Back in 2002, people used to write endless editorials about how Germany had made a mistake in joining the Euro and killed its own export industry because it had been suckered into accepting an uncompetitive fixed D-Mark to Euro rate. How the times change. Read, for instance, this article from back in 2002 and tell me whether it reminds you of editorials about any country you know (see more articles along the same lines in the comments section). Isn't that funny? Or Lapa-witzig, as the Germans might joke if they followed the Greek defaultnik literature?

The Germans of course sucked it up and pursued a strategy of - you guessed it - internal devaluation. Perhaps the fact that it worked for them, despite the pain, might be the reason they think it just might work for us. The point is that, even if the dynamics of the Euro are a zero-sum game, who sits on either side of the zero-sum equation is not set in stone; it is endogenous.

For those of you who are hungry for more detail, check the original source of the data here. Or you can download my selection of the data from here.

By the way there are inconsistencies in the data. Greece's imports from Germany don't seem to add up to Germany's exports to Greece, and vice versa. This could be due to reporting asymmetries (Germany may not report the same in imports as we report in exports due to accounting conventions), or taxation, or maybe I've done something wrong. Check it out for yourselves, though, the trends are much the same either way:

Now, for the hungrier ones:

The following tables give you a summary of Greece's top import and export markets as well as the sources of our biggest deficits and surpluses over time. I've chosen 2000 and 2008 as milestones to enable comparisons between pre-and post-Euro Greece as well as pre- and post- crisis Greece. Feel free to download.

If, on the other hand, you're not happy with this but would rather play with and plot the data youself, then download the file below instead. It's an Excel file, with data for each year on imports/exports from/to every country imaginable. UPDATE: As a treat for returning readers, I've added two extra tabs to the excel file, essentially performing a regression analysis of Greek imports from Germany. Although the sample is tiny and the method is crude, for now the suggestion is that it was Maastricht, not Euro accession that changed the game when it came to German imports, although some might say it's all the same thing.

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